Faced with very loose definitions of sustainable investment, this framework brings welcome rigour to reduce confusion and strengthen transparency. Indeed, the taxonomy's strength lies in its objectivity. It establishes precise technical criteria that allow for concrete assessment of the environmental contribution of economic activities while limiting the risks of greenwashing.
Nevertheless, this tool remains underutilised at present and needs to be rethought to make it more usable by financial actors.
Although its objective of directing investments towards sustainability is clear and ambitious, the European taxonomy has been constructed with a focus on calculations at the expense of user experience. By neglecting to consult financial actors about their concrete needs, it has created a sophisticated technical framework that is difficult to apply in the daily practice of financial institutions.
Thus, despite its objective, the taxonomy today remains primarily a reporting tool rather than a genuine lever for investment selection. Indeed, according to a study conducted by WeeFin in 2024, ESG funds commit to investing on average only 0.41% of their positions in taxonomy-aligned securities.
Several obstacles explain this situation:
Too slow deployment in the face of climate urgency: Financial and non-financial actors must act now, but are hindered by:
An overly sophisticated framework generating excessive complexity and implementation delays
DNSH (Do No Significant Harm) and technical criteria creating dependency on very granular data that is difficult to obtain
Technical thresholds sometimes too restrictive, as highlighted by a recent British study conducted by the Department for Business and Trade, to allow their widespread use. Defining high thresholds is necessary for identifying truly green activities. Nevertheless, implementing intermediate rates would allow for more common use of the taxonomy.
A limiting binary approach: The desire to promote only a dichotomous vision of sustainable investment (identifying only "ultra-green" activities) without intermediate nuances complicates its practical implementation and does not allow differentiation between a highly polluting activity (e.g. coal), a highly polluting activity in transition (e.g. an electricity producer transforming its energy mix), and an activity with limited environmental impact not covered by the green taxonomy (e.g. care homes for the elderly).
A restricted scope of application: Only large European companies are currently subject to taxonomy reporting obligations. For an asset manager, it therefore becomes difficult to commit to a percentage of taxonomy alignment when their investment universe includes many companies not subject to these obligations.
Lack of regulatory stability: Frequent changes to the framework (such as the 2023 amendment on activities aligned with climate objectives) do not leave actors enough time to adopt the framework before it is modified.
Complex calculation methodologies: The lack of understanding regarding certain calculation methods (such as GAR - Green Asset Ratio) and insufficient clarification from the regulator generate persistent ambiguities.
The central question is therefore: how to encourage financial actors to use this tool more, while preserving its fundamental objectivity?
Drawing on various expert proposals, particularly those from Natixis, the Canadian model championed by Mark Carney, and Ben Allen (co-rapporteur of the Technical Working Group of the European Platform on Sustainable Finance), WeeFin advocates for a taxonomy structured in three categories:
1.Green activities: To highlight truly sustainable activities, as is already the case today.
2.Brown activities: To clearly identify unsustainable activities towards which investments should not be directed. This distinction is essential to differentiate activities simply not eligible for the green taxonomy (such as certain social activities) from activities constituting a real barrier to transition (such as coal mining).
3.Activities in transition: To recognise activities that, without being completely sustainable, have put in place a credible plan to progress towards sustainability. These intermediate activities between green and brown would allow for the integration of a dynamic dimension essential to ecological transition. These could also be integrated into the brown category, as currently unsustainable activities that are on the path to transition. Regular monitoring would be essential to ensure compliance with this transition.
The introduction of these three dimensions would make the taxonomy truly exploitable for asset managers. Today, many ESG funds cannot claim substantial taxonomy alignment, as their investments are not entirely "green" according to current criteria. Adding an intermediate level would allow these funds to integrate the taxonomy framework, thus facilitating its adoption on a larger scale.
To make the taxonomy more operational, WeeFin is aligned with the following suggestions:
Broaden the scope of eligible/aligned activities: For example, currently, only two sectors of activity can contribute to biodiversity conservation and protection objectives. The European Commission has mandated the European Platform to propose new aligned activities (see consultation)
Simplify reporting templates: Particularly at the level of financial entities such as credit institutions, to facilitate adoption and implementation.
Clarify and simplify technical criteria and calculation methods: To allow faster and more efficient adoption by all actors.
The European taxonomy remains a formidable lever for directing financial flows towards a more sustainable economy. With appropriate adjustments and the support of adapted technological solutions, it will be able to fully play its role in the ecological transition that we must collectively accomplish.
WeeFin is a French impact fintech founded in 2018 with a clear mission: to elevate sustainable finance standards and make them the norm. Convinced that sustainability should be at the heart of every investment decision, we have developed the first SaaS technology entirely dedicated to sustainable finance. By combining deep financial expertise with innovative technology, we address one of the industry's greatest challenges today: making sustainable finance both actionable and impactful for our clients (asset managers, asset owners, wealth managers, asset servicers, pension funds...).
With our strategic position at the heart of the financial ecosystem and through our constant contact with providers, we are more than just a technology supplier - we are partners in our clients' sustainability journey. We help financial institutions not only meet regulatory requirements but also lead the transition towards a more fair and resilient global economy.
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